1.The Gulf Industries is considering expanding its current line of business and has developed the following expected cash flows for the project. Should this project be accepted based on the modified internal rate of return if the discount rate is 11.5 percent? Why or why not?

Year Cash flow

0 AED 60million

1 12

2 36

3 -29

4 8

2.Listed below are the cash flows associated with two mutually exclusive projects, A and B. Calculate their crossover rate.

Year A B

0 -15,000 -15,000

1 8.,000 14.,000

2 10,000 8,000

3 13,000 3,000

3.A project requires an investment of AED 50 million and has a net present value of AED 5 million, what is the profitability index for the project? Should this project be accepted if the IRR is 14 percent and the desired PI is 1.2? Why or why not?

4.You are considering investing in a start-up company. The founder asked you for AED 9 ,800,000 today and you expect to get AED (2) million per year for the first five years and (4) million in year 6. Given the riskiness of the investment opportunity, your cost of capital is 18%. Should you undertake the investment opportunity?

5.The RMT Company is considering a AED 56.76 million investment in a new project which they anticipate will provide annual cash flows of AED 15 million for the next 6 years. The firm has a 15% cost of capital. What is the internal rate of return?